Does Mandatory IFRS Adoption

We test whether mandatory IFRS adoption affects firm-level ‘crash risk,’ defined as the frequency of extreme negative stock returns. We separately analyze non-financial firms and financial firms because IFRS is likely to affect their crash risk differently. We find that crash risk decreases among non-financial firms after IFRS adoption, especially among firms in poor information environments and in countries that experience larger and more credible GAAP changes. In contrast, crash risk does not change among financial firms after IFRS adoption, on average, but decreases among financial firms that are less affected by IFRS’s fair value provisions, and increases among banks in countries with weak banking regulations. Taken together, our results are consistent with increased transparency from IFRS adoption broadly reducing crash risk among non-financial firms, but more selectively among financial firms, and with financial regulations playing a complementary role in implementing IFRS among financial firms. Acknowledgments: We thank the following for their helpful comments: Donal Byard, Ted Christiansen, Holger Daske, John Harry Evans III, Jeffrey Ng, Eddie Riedl, and workshop participants at Arizona State University, Brigham Young University, Massachusetts Institute of Technology, National University of Singapore, The Ohio State University, Southern Methodist University, The 2013 European Accounting Association Annual Congress, University of Pennsylvania, and University of Pittsburgh. Support for this project was provided by a PSC-CUNY award, jointly funded by The Professional Staff Congress and The City University of New York.